Extra £3bn a year to rebuild UK is a 'drop in the ocean'

The Government has made a belated attempt to kickstart infrastructure spending
with the promise of an extra £3bn a year from 2015/2016 and the potential
use of guarantees to fund new nuclear power plants.

Experts estimate the UK needs at least £400bn investment into the country's creaking infrastructure over the next 10 yearsPhoto: Alamy

In the Budget, George Osborne said savings from departmental budgets would be redirected to rebuild Britain’s energy, transport and digital infrastructure and hinted the Government’s £40bn guarantee scheme to help finance riskier projects could be extended to nuclear power.

But the extra public money was widely criticised as too little, too late, while industry cautioned that the deadlock in negotiations between France’s EDF Energy and the Government over the planned £14bn Hinkley Point C power plant was unlikely to be broken by a guarantee on upfront financing costs.

Richard Threlfall, head of infrastructure at KPMG, said the extra £15bn of public money over five years was a “drop in the ocean”, adding: “Experts estimate the UK needs at least £400bn investment into our ailing infrastructure over the next 10 years.”

Nick Prior, Deloitte’s infrastructure chief, said: “The extra investment won’t happen until 2015 but we need shovels hitting the ground now. Over the past three years, we have had a lot of rhetoric about the importance of infrastructure spending but new orders in the construction sector are down nearly 40pc from their 2007 peak. That is the litmus test.”

State-backed EDF is understood not to have asked for guarantees to underpin the construction phase at Hinkley Point, with talks focused on the “strike price” – the amount the Government commits to pay for electricity from the plant.

But Japan’s Hitachi, which last year bought the Horizon business that plans to build new reactors at Wylfa on Anglesey and Oldbury, near Bristol, is thought to be more interested in some sort of guarantee during the initial construction stage – not least as it tries to bring other investors into the consortium. That could be a debt guarantee or some sort of backstop on construction risk.

To “reform its approach to infrastructure delivery”, the Government added it was “creating an enhanced central cadre of commercial specialists in Infrastructure UK” - a Treasury body.

Richard Abadie, head of infrastructure at PwC, said of the extra £3bn: “The reality is it won’t make a significant impact on economic growth as it comprises less than 0.2pc of GDP.”

Kate Orviss, infrastructure partner at Pinsent Masons, said there was a “complete lack of clarity over what it will be spent on”. The Government plans an update in June alongside the Spending Review.